New Policy Regarding Fund Activity
The Board of Governors of the Community Foundation of Greater Memphis recently approved a new policy regarding gift and grant activity in our donor-advised funds. This new policy was prompted by a recommendation suggested by our accrediting body, National Standards for U.S. Community Foundations.
With the rapid growth of donor-advised funds over the past 20 years, tax writers in Washington have become concerned about donors giving large amounts of money to their funds, earning significant tax deductions, but then simply parking those funds there without making significant grants out to benefit the community, which was the purpose for offering the tax deduction in the first place. As a result, Congress and the IRS have begun to scrutinize the grant activity in donor-advised funds and have even threatened to take action that could potentially impact their operation in the future.
In response, the community foundation field – through our National Standards process – has recommended that we adopt specific policies to ensure that grants are made appropriately from our donor-advised funds. This new policy – the full text of which is included in this letter – is meant to further define work that we already do to support your charitable giving, and you will most likely not see any changes in the day-to-day management of your fund.
Simply put, the Community Foundation seeks to ensure that all our funds are “actively managed.” A fund is considered “actively managed” when there is regular communication between one or more Advisors to the fund and the Community Foundation regarding the existence and purpose of that fund. For most of our donors, this requirement will be satisfied simply by making grants from your fund on a regular basis. But some of our donors specifically seek to grow their fund over time – and not make grants currently – so that they will have amounts available in the future for more significant grantmaking. Under our new policy, that will still be acceptable. All we ask is that our donors formally advise us of those intents. This is typically done by filling out an attachment to your fund agreement which was designed for that purpose. That attachment is known as “Schedule C.”
The new policy states:
Pursuant to Section 6. Fund Advisors and Sunset Provisions, of the Fund Agreement:
If the Fund continues beyond the lives of the named Advisors, or if the named Advisors shall for a period of five (5) consecutive years fail to make [grant] recommendations to the Board of Governors, or if the Donor has not provided Schedule C outlining charitable purposes the Fund is to serve, the Board of Governors will determine the disposition of the assets.
In practice, if i) there are no gifts to a donor-advised fund for 36 consecutive months; ii) the Community Foundation has not received a grant recommendation from the Advisor for the same 36-month period; and iii) there are no instructions on Schedule C to the Fund Agreement indicating future grantmaking plans, the Community Foundation will contact the Advisor(s) in order to determine his or her preferred manner of compliance with the above policy. The Advisor will recommend grants currently and/or execute a new or revised Schedule C to the Fund Agreement containing these new provisions.
If – after repeated failed attempts by the Community Foundation to contact the Advisor(s) or failure of the Advisor(s) to take appropriate action, and not less than five years after the most recent grant recommendation from such Advisor(s) – the Board of Governors will determine the disposition of the Fund’s assets. Such options include making an annual payout from the Fund for the Community Foundation’s unrestricted use (such as to the Community Partnership Fund or for the Community Foundation’s general use).
If, at a later date, the Advisor(s) desire to become re-engaged in advising the Fund, the Board of Governors may choose to have such privilege revert back to the Advisor(s).
We believe that this new policy strengthens our ability to understand and carry out your wishes for your fund. And again, most of you will not see any change in the operation of your fund anyway.
In the next few months, we will be reviewing the activity of all our funds, and our Donor Services Officer, Amy Beth Dudley, may be reaching out to you to clarify your plans. Those plans can be very simple, and we are only seeking to help you plan for the future of your fund in a way that best serves your wishes.
If you have any questions about this policy, or if you would like to discuss the details of your fund, please feel free to reach out to me at (901) 722-0045 or rfockler [at] cfgm [dot] org or Amy Beth at (901) 722-0038 or adudley [at] cfgm [dot] org.
Thank you for choosing the Community Foundation as your charitable partner. We look forward to continuing our work with you to better serve our community.
Robert M. Fockler
May 1, 2018